Introduction

Objectives of the review

8Because there is a significant amount of content to trust law, and because trusts, as a form of property holding, interact with many other areas of law, it has been necessary to focus the project on the aim of getting core trust law right. We believe that trust law can be improved for the benefit of the many New Zealanders involved with trusts. The following objectives for reform of trust law, which we would like to see achieved from the review, are used in analysing the options for reform:

(a)Modernisation – Trust law needs to be fit for the modern context. Trusts are widely used in twenty-first century New Zealand and therefore relevant legislation is needed. The current legislation is outdated in its language and some of the concepts used. It is difficult to understand.

(b)Clarification – Trust law is far from clear. Much of it is found only in complex case law. There are also many parts of the Trustee Act that are unclear and difficult to understand and apply because of the Act’s age and drafting style. Some aspects of trust law, whether statutory or judge-made, are uncertain and in need of clarification to ensure the smooth running of trusts. It is especially important that legislation make obligations and powers clear. Many New Zealanders without legal training or experience are involved in trusts. It is important that those involved can access clear information about what the trust relationship requires. Clear legislation can help to alleviate confusion or uncertainty about the roles and requirements of participants in a trust.

(c)A more useful trusts statute − Many of the provisions of the Trustee Act are irrelevant and these should be removed. The Trustee Act does not assist with the creation and management of trusts, and many of the default positions in the Trustee Act are now undesirable. There are matters not covered by the Trustee Act that it would be helpful to include because they are relevant to a large number of trusts. More useful provisions in the statute can allow greater reliance on its default positions rather than most trust deeds overriding the legislation. Including general explanations and principles in the statute would make the legislation more understandable and useful to non-lawyers, and set clear benchmarks for how a trust is to be used and managed.

(d)Reduction of administrative difficulties and costs − Many of the procedures in trust law and under the Trustee Act lead to administrative difficulties and costs. It is necessary in many cases for trustees to apply to the High Court regarding straightforward procedural matters. The resulting costs deplete trust assets and can be time-consuming for those involved. It should be possible for some procedures to be carried out independently of the courts. The legislation should facilitate the resolution of disputes in an efficient way, particularly because of the large number of trusts with limited assets and the use of trusts for commercial purposes.

(e)Fairness − The law should facilitate the fair use of trusts. It should not hinder people’s freedom to deal with their property as they choose, but should also provide ways to protect the rights of those involved in trusts and those interacting with trusts, including settlors, trustees, beneficiaries and creditors.

(f)Fit for New Zealand context but consistent with overseas trust law− Trust law should reflect the unique features of the New Zealand trust context, which have implications for how the law should be shaped. The context means that there is need for legislation that is efficient and is flexible enough to contemplate a variety of types and uses of trusts. There is a need to be cautious about new costs for trusts because many New Zealanders would be affected. New Zealand law needs to take account of the prevalence of discretionary trusts. However, because New Zealand is a small nation with relatively limited trusts jurisprudence it is important for New Zealand law not to move too far out of line with internationally accepted trust law principles. Departure from the law in jurisdictions such as England, Australia and Canada should occur only where it is justifiable based on the New Zealand context.7

9The scope of this review is limited to the law that is required for trusts to be established and managed successfully. This includes the concept of a trust, the obligations of those in trust relationships, the powers and role of a trustee, the powers of the court in addressing these matters, and the processes available for resolving problems. We have been interested in the interaction of trusts with other areas of law and policy, such as relationship property, creditors and insolvency, taxation and government assistance, to the extent that they illuminate the use of trusts and potential areas of concern within trust law. However, it is not within the scope of this review to resolve problems that might have arisen in these areas due to the existence of trusts as a particular form of property holding.

10This stage of the review has primarily focussed on private express trusts. We suggest that implied trusts, such as resulting and constructive trusts, should not be covered by the definition of a trust or the new statute. These court-made or court-acknowledged “trusts” are considerably different from the trusts targeted by trusts legislation. We acknowledge that in some situations the courts may continue to choose to use provisions of trusts legislation as a reference for the law applying to non-express trusts.

11The proposals in this paper do apply to public trusts (charitable and other purpose trusts) as well as private trusts to the same extent as the Trustee Act currently applies. Some of our proposals address beneficiaries and so are clearly not relevant to purpose trusts, but we expect that much of the new legislation would be drafted in such a way that it would apply to all express trusts where relevant. Where there are issues specifically affecting charitable and other purpose trusts, these will be addressed in stage two of the project.

7In its submission on the Introductory Issues Paper, the New Zealand Law Society commented on the importance of New Zealand trust law being consistent with trust laws in other comparable jurisdictions, as far as possible, and the ability to draw on the existing body of authoritative precedent of direct relevance from other jurisdictions.